Curated By ZenithOptimedia, The ROI Agency
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More foreign brands like Adidas and Gap are expanding their reach into China's market by tapping the user base of the country's largest online retailer Taobao.com.
Taobao, launched in 2003, has risen to dominate China's online retail market, with more than 370 million users, according to the Chinese company. The site's vast customer base has made it a far-reaching marketplace for Western brands wanting to sell to Chinese consumers, Taobao reports.
"We've definitely seen increasingly more interest from overseas companies exploring Taobao Mall as an avenue to reach Chinese consumers, particularly those residing beyond Beijing and Shanghai," said Taobao spokeswoman Justine Chao. About half of all transactions on Taobao come from areas outside of China's major cities.
Taobao Mall, the company's business-to-consumer platform, currently has more than 30,000 brands. While a majority of the brands are domestic, some well-known international brands have decided to set up their own online stores on Taobao Mall.
The latest company has been U.S. clothing retailer Gap, which launched its own Taobao Mall store last week. Gap decided to do so, even as it launched its own Chinese e-commerce site in November.
"We are launching on Taobao to expand our reach to Chinese consumers given Taobao is the most trafficked e-commerce site in China," Gap said in an e-mailed statement. "Our presence on Taobao is complementary to our own e-commerce site, which is doing well, along with our stores."
A few other major brands with online stores on Taobao Mall include Levi's, Samsung and Uniqlo. Last August, sportswear manufacturer Adidas also established an online store on Taobao Mall, making it the company's sole e-commerce provider in China.
In an e-mailed statement, Adidas said while most of its sale still come from its storefronts in China, the companies online sales in the country has seen "rapid growth."
"(Taobao) allows us to reach millions of consumers in a very direct way, many of whom we could have difficulty reaching through brick-and-mortar storefronts," Adidas said. "The decision was also an acknowledgement that Chinese consumers are increasingly turning to the Internet to do their shopping."
Taobao, which started as a consumer-to-consumer platform, rose to the top of the China's online retail market after beating out e-commerce rivals like eBay in the country. The company launched its Taobao Mall platform in 2008 as a way to expand into China's growing business-to-consumer (B2C) market.
China's B2C market is expected to reach a total sales value from $15 billion in 2010 to $99.5 billion in 2013, according to Beijing-based research firm Analysys International. Taobao Mall currently has the largest share of China's B2C market at 28.5 percent.
While partnering with Taobao can come with opportunities, launching a store on the site can also present challenges, according to Bestseller, a Danish clothing company that owns brands such as Vero Moda and Jack & Jones. Bestseller currently has 4,000 stores in 300 cities in China, but has also set up an online store on Taobao Mall.
The company said that part of the motivation to launch a store on Taobao was to stop the selling of counterfeit goods on the site, according to Dan Friis, Co-CEO of Bestseller China. He added that there are still many merchants on Taobao selling counterfeit products using the company's brand names.
"They have done a lot (to reduce the counterfeit products sold on the site), but they themselves don't actively try to reduce that," he said. "We had to push them and work with them everyday, to achieve this. We can do this because we are a very strong organization in China. Brand owners who don't have a big business, who don't have the buying power, they cannot control this. It takes a lot of energy. It really does."
Bestseller hasn't been the only one to point out the problem. A U.S. government report recently called Taobao a "notorious market" for allowing its merchants to sell counterfeit goods. The report, however, noted that Taobao was making "significant efforts" to stop the illegal activities.
Although Taobao has been a positive company to work with, Friis also added that Bestseller's e-commerce sales through its Taobao store are still insignificant and haven't generated any major profits. Taobao's use of low price points and discounted goods were one reason behind this, he added.
"Taobao's low prices make up a very high share (of their sales). We are doing some lower prices, but we need to work very hard to raise prices. It's not a mature platform. China is quite different from Europe and the U.S," Friis said. Taobao responded by saying that the pricing problem is a business issue that exists everywhere. Companies using Taobao also exercise full control over their products' prices. Taobao also noted that it has stepped up its efforts in the last year to stop the sale of counterfeit products on the site. In 2010, the company removed 14 million product listings. Taobao has also launched a "covert buying operation" to purchase and examine suspected counterfeit products to check if they are genuine. So far, 586 sellers have been penalized in the operation, Chao said.